Closing fees increase out-of-pocket home-buying expenses and that’s how it really works.  Don’t believe the closing costs advice that says you can buy a house with no money out of your pocket when you are approved for a 100% purchase mortgage loan.

Closing costs are the sum of the extra fees, which can increase the price of a house by several thousand dollars.  These are costs involved in every purchase transaction, whether it is a car, land, or a house.  When a mortgage company underwrites and processes your loan when you are buying a new house, they charge a fee for that.  In preparing all of the legal documents that are necessary for the transaction, the title company incurs costs by researching the ownership record of the property.  Other components of your closing costs are the property taxes and several government fees that must be paid, such as recording the new title with the relevant county.

But here’s the good news: there is a way to buy a house without having to take money out of your pocket!  Don’t let yourself be bugged by these costs.

You can offer the seller a fair price and ask them to pay closing and related fees instead of trying to get the rock-bottom price for your new home.  There are many mortgage programs that will allow the seller to pay up to 6 percent of purchase price towards the buyer’s closing costs.  If your agent gets the seller to come down to $100, 000 from an asking price of $106,000, you will be the one to pay all of the closing fees.  That’s one option.  But here’s a better one, buy the same house for $106,000, have the seller pay those fees, and keep all your money.   The total purchase price is the same– only $40 per month on the average.

By spending that $40 per month yourself with a slightly larger mortgage payment, you can actually keep a lot more money.  For instance, $6,000 divided by $40 is equal to 150.

If you spend $6,000 to save $40 per month (because you chose a smaller loan and paid the costs yourself upfront), it will take you 150 months to recoup that $6,000. In other words, you will be paying that extra $40 per month for twelve and a half years to make up the initial closing costs.  The average home buyer doesn’t even stay in their first home for 12 years.

You can instead put that same $6,000 in a better investment such as remodeling projects that would increase the value of your home, making it a better investment and worth more if you decide to sell it someday.  That would pay only 7% interest compounded annually, and you would have $13,986 in the same amount of time that it would take to pay it off with monthly payments.

There are times when sellers are more apt to agree to pay all or part of closing fees, such as:

* The property that you are making an offer on has been on the market for a long time.

* The seller has already moved and is making two mortgage payments.

* There are a lot of similar homes for sale, creating a buyers’  market.

You may be able to get a lower price and seller-paid closing fees, saving even more money.  A good real estate agent will make this possible for you.  If not, then your real estate agent is not that good after all.  Hire a better one who will put your best interest in their mind.